Phoenix firms spark fly-by-night fears

By Robert Miller

12:01AM GMT 28 Feb 2006

More than one in four businesses have fallen foul of a phoenix company, according to a poll by the Better Payment Practice Group.

Philip King, a member of the practice group, said that some "unscrupulous" company directors and administrators were using the more liberal rules in the Enterprise Act, introduced in 2003, to get out of paying bills and to start a new business out of the ashes of the old one.

The law also allows company directors to call in an administrator of their own choice without the need for a court hearing.

The BPPG executive added: "The purpose of the Act was to enable businesses that genuinely ran into trouble, through no fault of their own, to start again with a clean sheet without crippling debts and without being tarred with the stigma of bankruptcy. And in many cases it has helped."

However, Paul Davis, a partner of insolvency specialists Begbies Traynor, said: "While there is no question that doing a 'phoenix' can represent the best deal for creditors, there are instances of the Act being misused."

Mr Davis gave an example of where a phoenix has helped a business to survive.

He explained: "Last July we dealt with a retail men's chain with 30 shops that had run out of money, was behind with the rents and had not paid the wages of 100 staff.

"We had to move swiftly or the whole business would have folded, so we did a phoenix and the company survived and the staff were paid."

Stuart Hopewell, the credit manager for Fuji Film and vice chairman of the Institute of Credit Management, said his company had fallen foul of a phoenix trick pulled by a company three times.

"We were leasing some equipment to this company," he explained, "and each time we had to decide whether to remove the equipment, which would have little re-sale value or agree to roll it over under the phoenix arrangement."

Mr Hopewell said that in his experience a number of accountancy firms actively advised companies "to do a phoenix" simply to avoid paying their debts.

This, he added, was an unintended consequence of the Enterprise Act and he urged businesses to report such instances to the Department of Trade and Industry.